Between the B2C market that you normally see every day and the B2B Market, many differences exist. Let’s look at the B2B Market Characteristics, by comparing the B2B to the B2C market.
You go into a shop and buy your groceries. That is the B2C market, Business to Consumer. But before the products you buy arrive at the B2C market, they pass many stages of the B2B Market, the Business to Business Market. Before products can be sold to consumers, the producer sells them to wholesalers (and before buys raw materials from other businesses, who in turn buy materials from other businesses…). The producer in turn sells the products to retailers, who in turn serve the consumer market. You see that the B2C market is only the last stage of a long set of exchanges between Businesses. In fact, business markets operate ‘behind-the-scenes to most consumers. But in contrast to their visibility, their importance is huge: Most of the things you buy involve large numbers of business purchases before you ever see them.
Business markets differ in many ways from consumer markets. The B2B Market Characteristics can best be observed when comparing them to those of the B2C market. The main differences between B2B Market Characteristics and B2C Market Characteristics can be found in the market structure and demand, the nature of the buying unit, the types of decisions, and the decision process involved.
| B2B Market | B2C Market |
|---|---|
| Market Structure & Demand | |
| Fewer but larger buyers | More but smaller buyers |
| Derived demand | Direct demand |
| More inelastic demand | More elastic demand |
| Fluctuating demand | Stable demand |
| Nature of Buying Unit | |
| More buyers – greater DMU | Single buyer – small DMU |
| More professional purchasing effort | Simpler purchasing effort |
| Decision Process | |
| More complex buying decisions | Simpler buying decisions |
| Formalized buying process | Informal buying process |
| Long-term relationships | Short-term relationships |
Market Structure and Demand in B2B
One of the B2B Market Characteristics certainly is that it deals with far fewer but much larger buyers than the B2C market does. Even in large B2B markets, few buyers usually account for most of the purchasing. There are simply fewer companies acting as purchasers in the B2B market than consumers in the B2C market. However, the amount they purchase is much larger.
In addition, another aspect of the B2B market characteristics is that business demand is derived from demand. Demand in the B2B market is derived from the demand for consumer goods in the B2C market. If consumer demand for computers goes down, so will demand for microprocessors at the beginning of the chain. Therefore, the demand for microprocessors comes from the demand for final consumer goods.
B2B Market Characteristics also include a more inelastic demand. This means that demand is not affected that much by short-term price changes. The total demand for many business products is, in fact, not dramatically affected by price changes. Why? Let’s look at an example. If the price of leather goes down, a shoe manufacturer will not buy much more leather than he usually does, because his demand is based on consumer demand. If the price of leather goes up, will he buy less? Probably not, since he still needs the leather to produce shoes to satisfy consumer demand.
Another one of the B2B Market Characteristics is that demand fluctuates more and more quickly, while in B2C markets it is more stable. The reason is called the bullwhip effect. If consumer demand increases by only 10 percent, the retailer may think that it would be wise to order 20% more to have enough stock for the rising demand in the future. The wholesaler supplying the retailer is likely to order much more than the 20% increase, let it be 40%. And so it continues up to the beginning of the whole chain. Therefore, a 10% rise in consumer demand can cause as much as a 200% rise in business demand. As a result, demand on the B2B demand fluctuates much more than demand on the B2C market.
Nature of the Buying Unit in the B2B Market
B2B Market Characteristics involve that the buying unit involves more buyers. Thus, the DMU, the Decision Making Unit, is larger. In essence, this means that more people will decide about each purchase. The more complex the purchase, the more likely it is that more people will be involved in the decision-making process. For instance, a new airplane purchased by an airline is not a decision made by one person. In the B2C market, usually, the DMU is much smaller. It may be one person buying groceries, or the family deciding together.
Another of the B2B Market Characteristics is a more professional purchasing effort. In many cases, business buying is done by trained purchasing agents. They are specialized in learning how to buy better. There may even be buying committees composed of experts and top management. In contrast to that, B2C markets normally have a much simpler purchasing effort.
Types of Decisions and the Decision Process
The next aspect of the B2B Market Characteristics is that business buyers usually face far more complex buying decisions than buyers in the B2C market. Why? Because business purchases often involve much larger sums of money, more complex technical and economic considerations, and interactions among much more people at many different levels of the buyer’s organization. A consequence of this factor of the B2B Market Characteristics is that the decision-making process may take far longer than that of a B2C buyer.
Furthermore, the buying process of the B2B market is usually more formalized than the consumer buying process. B2B Market Characteristics just involve more detailed product specifications, written purchase orders, as well as careful supplier selection, and formal approval. Also think of contracts, warranties, and so forth.
Finally, one of the B2B Market Characteristics is that there is a strong focus on building and maintaining long-term relationships. The reason for this need is that buyers and sellers are often rather dependent on each other. Together, they need to define problems, find solutions, and support each other. Also, offerings often need to be customized. Most companies cannot just rely on spot suppliers who might be available when needed. For example, an airline will be likely to stick to one airplane manufacturer and build a long-term relationship with that supplier.
This is profitable for both sides, whereas switching suppliers might be very costly. Certainly, also in the B2C market long-term relationships are often desired, especially from the sellers’ side. These want to capture customer value in the long run: Customer Lifetime Value. But in contrast to the B2B Market Characteristics, it is not a critical requirement to survive. Therefore, there are more short-term relationships in the B2C market.
Summary
As we have learned, the B2B Market Characteristics differ greatly from those of the B2C market. On the whole, it can be concluded that market structure and demand, the nature of the buying unit as well as the types of decisions, and the decision process are more complex.
